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Can Synaptics Really Do Better?

Synaptics Inc., whose chips power displays and fingerprint scanners in products such as the Nokia Lumia, shown above, has rejected a $110 a share offer from an unnamed investment group backed by the Chinese government. The San Jose, Calif., company may have rejected the offer too quickly.
Photo:
Bloomberg News

By

Dan Gallagher

Updated Oct. 1, 2015 7:04 p.m. ET

Chinese companies are clearly shopping for deals in the U.S. semiconductor sector. But not all opportunistic plays are created equal.

The latest target appears to be
Synaptics,
whose chips power displays and fingerprint scanners in smartphones. An unnamed investment group backed by the Chinese government has offered $110 per share, or about $4 billion, according to a Bloomberg report, an amount rejected by the company as insufficient. Synaptics didn’t comment.

Still, the possible approach calls to mind a report from July that memory chip maker
Micron
had fielded an offer from Tsinghua Unigroup Ltd., another state-backed entity. Like Micron, Synaptics has been ravaged by a selloff that has clipped a significant portion of its market value in a short time—so inviting interest from shrewd buyers.

In the case of Synaptics, the stock peaked at an all-time high just above $101 in mid-June before collapsing to a low of $63.82 earlier this week. A significant culprit was a report in a Taiwanese trade publication that Apple is working to develop its own display driver technology—which could potentially cost Synaptics business with Apple’s hot-selling devices.

Unlike with Micron, interest in Synaptics wouldn’t automatically represent an attempt to buy the company on the cheap. The reported offer of $110 is actually 33% above the stock’s 100-day moving average.

It would also represent a multiple of about 16 times forward earnings—about 23% above the average of the PHLX Semiconductor index. At a peak valuation in mid-2014, Synaptics traded 20% above the index, and has averaged an 8% discount over the last five years.

So if Synaptics really turned down $110 per share, it will need to show a compelling reason for why the stock will do more than just recover.